• Advertising

Supply Path Optimization Explained

Team InMobi
7 min read
Posted on March 09, 2021

Today, few terms in ad tech and programmatic ad circles are as frequently talked about and discussed as supply path optimization (SPO). Let’s dive into what it means, what it purports to do and what an SPO strategy can look like.  

SPO describes plans undertaken by advertisers and/or demand-side platforms (DSPs) to create the most direct, trusted, verified and efficient paths to publisher's inventory. 

As a result of SPO, they reduce the number of SSPs (supply-side platforms), ad exchanges and other supply partners that they work with and place ads with. This happens as advertisers and DSPs reduce the duplication of supply across partners but also by reducing the number of hops in the supply chain. 

Broadly put, SPO is important to demand partners because it helps assess the value of every single programmatic pipe. Of course, there are a bunch of variables that define this value including but not limited to transparency/efficiency of the pipe, quality of the pipe, infrastructure optimization capability and scale.  

For a more detailed look at supply path optimization, particularly as it relates to in-app advertising, be sure to download our in-depth guide on all things SPO

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Understanding the Current Programmatic Supply Chain 

To understand why SPO is becoming more popular of late, it can be helpful to take a step back to look at the current landscape and its potential complications.  

Consider what a typical programmatic supply chain can look like in the mobile in-app space. A brand looking to advertise would often work with an agency, which then works with or uses a DSP. The DSP then competes to buy inventory from ad exchanges and SSPs, which have direct connections with apps.  

This is a highly simplistic programmatic connection. Sometimes, inventory is resold or additional hops are required to connect to specific publishers, which can further extend the overall supply chain. Some exchanges, ad networks and SSPs will occasionally resell inventory that they don’t have a direct connection to, which can further extend the final supply chain. Of course, some intermediaries may do more than just resell, providing additional value or otherwise helping to facilitate a more effective or impactful programmatic ad transaction.  

What Should SPO Accomplish? 

Why bother implementing SPO in the first place? For those that have gone down the path, the goal is to better understand what’s actually happening behind all bid requests. For some, SPO is often undertaken in an effort to root out bad actors. Basically, the fear is that if too many people are involved in a transaction, then it can easily fall prey to fraud, arbitrage, etc. 

SPO more importantly helps advertisers get a better sense of how their dollars move along the supply chain. Not only are those involved in the middle likely taking a processing fee, but so are the vendors handling ad verification, viewability, creative development, fraud detection, etc. But who is collecting what at what time is not always easy for all advertisers and DSPs to determine – and if they don’t know how their money is being collected, then there is very likely leakage in the flow and the ROI is depressed. 

It often comes down to transparency. If brands are going to be involved in multiple auctions every second, they want to know what’s happening behind the scenes – and SPO is one way to gain that insight. 

Transparency can also be achieved through auction efficiency, specifically around the move towards standardized ad auction logic – principally around first-price auctions and transparency in reporting, including providing detailed auction mechanics, auction level metrics and other data logs. An SPO program then adds to this cause by pushing for transparency into the intermediaries in each transaction, helping advertisers and DSPs understand the compliance with their needs via technology standards including app-ads.txt and sellers.json, among others. 

Beyond transparency, there are other important factors to consider with/potential benefits of SPO: 

  • Quality of the pipe refers to supply quality (are the apps where ads appear premium/high quality?), diversity of supply, access (is the sourced directly or is it resold inventory?), priority (header bidding vs waterfall), and other measures in place to weed our low ROI traffic 
  • Infrastructure consumption, particularly around exchange-driven optimization in the light of duplicated traffic reaching DSPs in a header bidding world – efforts to throttle traffic meaningfully (this is where investment in call out helps), etc. 

While all the above are important, scale ultimately impacts the reach. Therefore, access to supply at scale via multiple leading header bidding/waterfall partnerships (while ensuring supply diversity in the process) is significant. 

Advertisers and DSPs can use a mix of such criteria to select the preferred route to access supply, and this becomes their SPO strategy. Ultimately, the point of SPO is to provide much greater insight into the programmatic supply chain, in order to better understand what’s happening with each transaction and how it can be potentially improved. 

Understanding the Future of SPO and Programmatic Transparency 

Right now, it’s important to note that SPO is not very common. According to one survey from Beeswax and Rubicon Project, only about one in five have implemented SPO or a similar demand-side initiative.   

But it will likely pick up steam in the coming months and years. Just about everyone throughout the programmatic supply chain is continuing to prioritize greater efficiency, trust and transparency, which will make this type of ad buying more effective for all stakeholders involved in the process. 

Interested in learning more about SPO? Be sure to download our latest guide for more insights on what SPO entails, what to look out for and how to approach the nuances of in-app SPO. 

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